Climate transition risk in U.S. loan portfolios: Are all banks the same?

Nguyen, Quyen; Diaz‐Rainey, Ivan; Kuruppuarachchi, Duminda; McCarten, Matthew; Tan, Eric K. M.

doi:10.1016/j.irfa.2022.102401

Cited by 31 publications

(6 citation statements)

References 42 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…It is worth considering that the banking sector indicates the financial health of an economy (Afzal et al , 2022) and plays a significant role in conducting the cyclical impact of climate change on real economy (Battiston et al , 2021). Despite maintaining sophisticated financial systems, moving towards sustainability amidst climate change is challenging as green technology adaptation (GTA) implies a structural transformation in the banking sector (Nosratabadi et al , 2020; Nguyen et al , 2023). Therefore, incorporation of climate change in banking sector’s performance model is needed (Mirza et al , 2023).…”

Section: Introductionmentioning

confidence: 99%

“…The latest literature discusses the impact on performance of banks in terms of risks and returns as a result of climate change and green transition (Reghezza et al , 2022; Meles et al , 2023), and the interaction impacts of climate change have been studied through carbon footprint (Nguyen et al , 2023; Stolbov and Shchepeleva, 2023) and adverse natural occurrences (Faiella and Natoli, 2019). Advancing this theme, this paper observes the impact of GTA on banking sector performance, moderated by climate change.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Climate change and the European banking sector: the effect of green technology adaptation and human capital

Afzal,

Hasnaoui,

Firdousi

et al. 2024

RAF

View full text Add to dashboard Cite

Purpose Climate change poses effect on banking sector’s risks and profitability through adaptation of green technology. This study aims to incorporates green technology adaptation in three sectors: green banking, green entrepreneurial innovation (EI) and green human resource (HR), in a model of bank’s performance. And determines the impact of climate change on bank risk and profitability. Design/methodology/approach An assessment of profitability and risk profile of commercial banks is done for 27 European countries for 2013–2022, employing a two-step difference system-generalized method of moments estimation technique with a moderate effect of climate change by including interaction between climate change and green technology adaptation. Findings The results indicate that green banking increases profitability, reduces credit risk and increases liquidity risk. The results also show that green human resource increases profitability and becomes a source of credit and liquidity risks for the banks. Green EI increases credit risk and liquidity risk, while the effects of green EI on profitability vary with the use of two proxies: Green patents increase profitability and environment, social and corporate governance (ESG) scores decrease profitability. Practical implications Supportive government initiatives, including subsidies and tax rebates to green borrowers, may take the burden of green transition off the banking sector. Originality/value This paper observes the impact of green technology adaptation in three sectors: banks, EI and HR, moderated by climate change, adding substantially to the existing literature in conceptual framework and methodology.

show abstract

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Climate change and the European banking sector: the effect of green technology adaptation and human capital

Afzal,

Hasnaoui,

Firdousi

et al. 2024

RAF

View full text Add to dashboard Cite

show abstract

“…Credit risk measurement efforts are mainly directed at assessing the risks associated with corporate loans and real estate exposure. For example, Breitenstein et al (2021) and Nguyen et al ( , 2023, using the default model of Merton, analyze the banks' exposure to climate transition risk to loan level. The results show that the climate transition risk is also due to other sectors' carbon emissions.…”

Section: Introductionmentioning

confidence: 99%

The Impact of the Carbon Footprint in European Loans of the Economic Activities

Di Febo,

Angelini

2023

armea

View full text Add to dashboard Cite

The transition to a low-carbon economy has interested academics and policymakers recently. Our goal is to develop a preliminary analysis of the transition risk of the European financial system and individuate the importance of the environmental aspect in the loans received by statistical classification of economic activities in the European Union (NACE Sectors). The study defines two indicators that identify the transition risk the EU bears and the “carbon footprint of the loan” (CFL) that Europe presents through the loans granted to the various economic sectors. In addition, it analyzes the possible interactions that influenced the value of loans. In particular, the paper puts as the dependent variable the loans and, as independent variables, the Value Added (VA) by each NACE sector, the carbon footprint of loans, GreenHouse Gas emissions, environmental taxes, and economic growth. The groups “D. Electricity, gas, steam and air conditioning supply” plus “E. Water supply, sewerage, waste management and remediation activities” result to be, simultaneously, the sectors with the higher risk transition and CFL. Besides, the results show that the VA and CFL variables are statistically significant. The first highlights the strategic importance of having better performance and economic development, which allow for obtaining higher loans. The second variable underlines the ever-increasing importance of environmental issues and how the authorities are attentive to the provision of financing based on the polluting capacity of those “funded”. From this, we can deduce the ever-increasing importance of renewable energy for reducing greenhouse gases (European objective of climate neutrality by 2050) and reducing dependence on fossil fuels.

show abstract

“…The goal is to study and forecast banking and payment trends, growth, risk, fraud, security, and malfunctions. From an ESG perspective, this involves supporting eco-friendly banking practices, investing in sustainable initiatives, ensuring access to banking services for underserved populations, safeguarding customer data and privacy, and promoting nancial literacy among customers (e.g., Oro, Ruffolo and Pupo, 2020;Nguyen et al, 2023).…”

mentioning

confidence: 99%

Environmental, Social, and Governance (ESG) and Artificial Intelligence in Finance: State-of-the-Art and Research Takeaways

Lim

2023

Preprint

View full text Add to dashboard Cite

The rapidly growing research landscape in finance, encompassing environmental, social, and governance (ESG) topics and associated Artificial Intelligence (AI) applications, presents challenges for both new researchers and seasoned practitioners. This study aims to systematically map the research area, identify knowledge gaps, and examine potential research areas for researchers and practitioners. The investigation centers around three research questions: key research themes for ESG and AI in finance, research intensity and interest evolution, and the use and progression of AI techniques within these themes. Eight archetypical research domains were identified: (i) Trading and Investment, (ii) ESG Disclosure, Measurement and Governance, (iii) Firm Governance, (iv) Financial Markets and Instruments, (v) Risk Management, (vi) Forecasting and Valuation, (vii) Data, and (viii) Responsible Use of AI. Distinctive AI techniques were found to be employed across these archetypes. The study contributes to consolidating knowledge on the intersection of ESG, AI, and finance, offering an ontological inquiry and key takeaways for practitioners and researchers. Important insights include the popularity and crowding of the Trading and Investment domain, the growth potential of the Data archetype, and the high potential of Responsible Use of AI, despite its low publication count. By understanding the nuances of different research archetypes, researchers and practitioners can better navigate this complex landscape and contribute to a more sustainable and responsible financial sector.

show abstract

Climate transition risk in U.S. loan portfolios: Are all banks the same?

Cited by 31 publications

References 42 publications

Climate change and the European banking sector: the effect of green technology adaptation and human capital

Climate change and the European banking sector: the effect of green technology adaptation and human capital

The Impact of the Carbon Footprint in European Loans of the Economic Activities

Environmental, Social, and Governance (ESG) and Artificial Intelligence in Finance: State-of-the-Art and Research Takeaways

Contact Info

Product

Resources

About